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Jun 2

Important New Case on Waste in Divorce Cases is a Game Changer

A recent decision from the First Court of Appeals out of Judge Hellums’ court (won by Michael Childs) provides a new twist to claims of waste or constructive fraud.  In Puntarelli v. Peterson, No. 01-11-01120-CV (Tex. App. – Houston [1st Dist.] Feb. 14, 2013), the wife asked the age old question “where did all of the money he earned go?” The wife was awarded a $196,000 judgment for wasting community funds because the husband could not account for how he spent his significant income during the five years this informal marriage/divorce case was pending.  The important message from this case that should prompt almost all non-monied spouses to allege constructive fraud is this – the wife did not have to prove any specific improper transfers of community funds.  The wife merely had to show that the husband’s expenses were much less than his income and then the burden shifted to the husband to show where the money went.  Proving how one spent money years ago is often not easy, but failure to do so can result in a large judgment, as happened here.  Of course, the husband did not help himself by failing to disclose his primary bank account in his sworn inventory or by failing to support the common law spouse during the pendency of the case.The Court of Appeals stated (citations omitted):

 

   “A fiduciary duty exists between a husband and a wife as to the community property controlled by each spouse.” A presumption of “constructive fraud, ” i.e., waste, arises when one spouse disposes of the other spouse’s interest in community property without the other’s knowledge or consent.  No “dishonesty of purpose of intent to deceive” must be established; such proof of subjective intent is “only required for actual fraud on the community, as opposed to constructive fraud on the community.”

   Once the presumption arises, the burden of proof then shifts to the disposing spouse to prove the fairness of the disposition of the other spouse’s one-half community ownership.”  The three primary factors for determining the fairness of the dispositions are: (1) the size of the property disposed of in relation to the total size of the community estate; (2) the adequacy of the estate remaining to support the other spouse after the disposition; and (3) the relationship of the parties involved in the transaction or, in the case of a gift, of the donor to the donee.
   A claim for the improper depletion of the community estate may be resolved by the trial court with an unequal division of the community estate, or a money judgment in order to achieve an equitable division of the estate.

. . . .

 

   While waste claims often are premised on specific transfers or gifts of community property to a third party, a waste judgment can be sustained by evidence of community funds unaccounted for by the spouse in control of those funds.

 . . . .

 

   The trial evidence that Puntarelli failed to disclose at least one bank account containing community funds into which his income was deposited, along with his failure to account for or explain the depletion of the community funds in his control over the five-year pendency of the divorce proceedings spent without Peterson’s consent was sufficient to shift the burden to Puntarelli to establish the fairness of his use of these community funds. He did not attempt to meet this burden.
   Because we have rejected Puntarelli’s argument that Peterson needed to identify specific transfers of community property (rather than indentifying unaccounted-for community funds in Puntarelli’s sole control) to shift the burden to Puntarelli to show the fairness of his use of those funds in his control, and because Puntarelli does not otherwise challenge the trial court’s waste judgment or argue that he established his depletion of community assets was fair to Peterson, we hold that the trial court’s waste judgment was within its discretion.

Category:Divorce, Property Division, Waste / Fraud |

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